Understanding competitive advantage in retail financial services

The process of establishing a competitive advantage is at the heart of competitive marketing strategy. However, a competitive advantage cannot be established without a clear idea of what constitutes the relevant competitive arena. Theoretically, there are strong arguments for seeing both these processes as market‐driven, but in practice their implementation may present particular problems for financial services providers. The degree of complexity and intangibility which characterizes most financial services is generally thought to complicate the identification of a clear source of competitive advantage; it is also argued that these characteristics might affect the extent to which an organization may identify the appropriate competitive arena. Provides preliminary interview‐based evidence on the extent to which the market‐driven concepts of competitive advantage and competitive arena have been adopted in financial services and evaluates the extent to which they can be adopted, given the distinctive characteristics of many of the services concerned. Contends that the findings confirm the difficulties associated with the development of a clear competitive advantage and the relative unimportance of price; they also highlight the practical difficulties associated with defining the competitive arena as market‐driven. While these difficulties are common across the financial service providers interviewed, concludes that there is some evidence to suggest that market‐driven competitive arenas and sources of competitive advantage are more easily identifiable for specialist or niche players.